This case dealt with what duty the owner of a non-executive mineral interest owes to a term non-participating royalty interest (hereafter “NPRI”) holder, as well as money received stemming from the alleged breach of that duty and claims of unjust enrichment. The court was faced with determining what duty, if any, a mineral interest holder had to ensuring, or at least not prohibiting, timely production of drilled wells as related to a term NPRI holder. The court relied on the contractual language of the deed creating the term NPRI and the hardline expiration date of that term to determine that no such duty existed as to the non-executive mineral interest owner.2
The case centered around a dispute between John Spellmann and others (hereinafter “Spellmann”) as term royalty owners and Kenneth and Janet Love, ex-husband and wife, as executive and non-executive mineral holders, respectively. Kenneth and Janet were married in 1985 and by deed in 1997 (hereinafter “1997 Deed”) Spellmann granted the Loves 253 acres in Dewitt County, Texas.3 Under the terms of the 1997 Deed, Spellmann reserved a 15-year term NPRI that expired on July 15, 2012, unless a producing well was in existence at the expiration of the term.4 In 2009, the Loves divorced. As part of the divorce settlement Janet Love received a 50 percent non-executive mineral interest in the 253-acre tract.5 On July 15, 2010, Kenneth Love, through his company LPI, entered into an oil and gas lease with Orca Assets who ultimately assigned the lease to Matador Resources. Two wells were drilled on the property but neither were in production at the time Spellmann’s interest expired on July 15, 2012.6 A month later, in August, the two drilled wells were completed and began producing on the property.
On April 30, 2014, Spellmann sued both Kenneth Love and Janet Love along with their respective entities for several claims related to the Loves’ failure to pay royalties and intentionally holding up production to extinguish his interest.7 Spellmann raised claims of breach of fiduciary duty, constructive fraud, and negligence against the executive rights holders due to his claim that Kenneth Love wrongfully delayed drilling and production.8 Spellmann also raised additional claims of unjust enrichment, money had and received, and constructive trust against Janet Love and her respective entities claiming that she was aware of the improper acts of her ex-husband and was in possession of royalties that should have been paid to Spellmann.9 On February 16, 2015, Janet Love filed a motion for summary judgement asserting that the claims by Spellmann were void as a matter of law, that motion was granted on April 24, 2015.10 Spellmann settled his claims against Kenneth Love, et al., in December of 2015.11 Spellmann appealed the summary judgement in favor of Janet Love.
The appellate court weighed the arguments of the two parties under a de novo standard. Spellmann claimed that Janet was unjustly enriched by the actions of her ex-husband, and despite having knowledge of those actions made no attempt to encourage timely production before the NPRI term had expired.12 Janet Love counter-argued that Spellman’s NPRI lawfully expired, that he has no interest in the non-executive mineral interest she obtained during her divorce, and that the 1997 Deed was an express contract governing Spellmann’s interest expiration date.13 The court agreed with Janet Love and interpreted the 1997 Deed to create a hard cut off of Spellmann’s term NPRI which only production – not drilling – could extend. Based on this interpretation, Spellmann’s NPRI expired on July 15, 2012 and production did not begin until August of that year. The court affirmed that at the time Janet received the royalty payments Spellmann no longer had an ownership interest in the property. Therefore, Spellmann’s claim of money had and received failed as such a claim turns on the receipt of money by one party when said money is rightfully payable to another. Spellmann’s claim of unjust enrichment failed because it is not an independent cause of action. The court explained that the doctrine of unjust enrichment applies to situations where a contract is not present and restitution is the only fair remedy.14 Here, there was a valid contract in the 1997 Deed as well as a valid settlement of divorce which justifies the ownership and monies received by Janet and her successors in interest.
While the court did not reach an explicit determination on the question of duty, based on the court’s determination that the expired term NPRI interest barred Spellmann’s recovery, it is implied that Janet Love owed no duty to Spellmann. Spellmann has not filed an appeal with the Supreme Court of Texas. It is important to note that the court did not pass judgement on Kenneth Love’s obligations as the executive right owner, and that his duties may differ from the duties owed by non-executive owners such as Janet Love. This holding demonstrates that non-executive mineral interest holders are unlikely to owe a duty to term NPRI owners to ensure timely production in order to avoid the expiration of the term NPRI.
1 Spellmann v. Love, No. 13-16-00011-CV, 2017 WL 3431801, (Tex. App.—Corpus Christi-Edinburg [13th Dist.] Aug. 10, 2017, no pet. h.).
2 Id. at 5.
3 Id. at 1.
6 Id. at 2.
12 Id. at 4.
14 Id. at *5.